China Bank Uses Jucai Chain Blockchain to Issue $1.3 Billion in Residential Mortgage-backed Securities (RMBSs)
Bank of Communications, one of China’s four primary banks, has issued more than $1.3 billion worth of residential mortgage-backed securities(RMBSs) on a blockchain.
The Bank of Communications is asserted to have been the main bank behind this, though some involvement may have also come from the China International Capital Corporation, the Commercial Bank of China and the China Merchants Bank.
RMBS contracts are based on debts incurred from residential loan agreements. They are often purchased by financial institutions because of their long terms and cash flow.
The blockchain is called ‘Jucai Chain’. It was first launched in June 2018 as a system for handling securities contracts in a more transparent way. The bank began moving data onto the chain in July.
In August, the bank said it conducted the RMBS due diligence through the platform.
“All parties in the [Jucai] chain [were able to] view and obtain relevant information in real-time to ensure the authenticity of the underlying assets and the effectiveness of disclosure,” the release said.
There is an advantage to placing credit data such as this on the blockchain as it will allow numerous parties within insurance and banking to access up to date information in order to ensure their own transactions are settled with the most up to date data. By using blockchain technology, the state-owned banks in China are improving transparency between themselves and are improving the way data is handled and thus, the way transactions are made and approved.
Doubters of these contracts say that their complexity and lack of transparency makes it difficult to monitor risk, and many have claimed that competition between financial institutions in trading these contracts was the main cause of the financial crisis of 2008.
Other commercial banks in China have also recently announced various asset-backed security issuances via distributed networks. For instance, the Agricultural Bank of China, another state-owned institution, offered a loan worth $300,000 using a blockchain system in the country's Guizhou province in July.